On February 10, 2014, after issuance of its financial statements for 2013, Higgins Company entered into a financing agreement with Cleveland Bank, allowing Higgins Company to borrow up to $6,000,000 at any time through 2016. Amounts borrowed under the agreement bear interest at 2% above the bank's prime interest rate and mature two years from the date of loan. Higgins Company presently has $2,250,000 of notes payable with Star National Bank maturing March 15, 2014. The company intends to borrow $3,750,000 under the agreement with Cleveland and liquidate the notes payable to Star National Bank. The agreement with Cleveland also requires Higgins to maintain a working capital level of $9,000,000 and prohibits the payment of dividends on common stock without prior approval by Cleveland Bank. From the above information only, the total short-term debt of Higgins Company as of the December 31, 2013 balance sheet date is
A) $0.
B) $2,250,000.
C) $3,000,000.
D) $6,000,000.

Question

Quizplus · Accepted Answer

The only short-term debt mentioned in the problem is the $2,250,000 notes payable to Star National Bank maturing March 15, 2014. The financing agreement with Cleveland Bank was not entered into until February 10, 2014, so it would not be included in the 2013 balance sheet date. Therefore, the total short-term debt as of December 31, 2013, is $2,250,000.

On February 10, 2014, After Issuance of Its Financial Statements